Critical approach to European austerity policies : a statistical analysis

Végh, Marcell Zoltán and Kazár, Klára: Critical approach to European austerity policies : a statistical analysis. In: Crisis Management and the Changing Role of the State. pp. 71-87. (2014)

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Abstract

The Great Recession started in 2008 has induced a desperate crisis management procedure among the member states of the EU. Without sufficient common budget and legitimate common crisis management strategy, member states had to apply their own set of measures to moderate the economic and social effects of the crisis. Most member states suffered a Wshaped crisis, with a recession in 2008-2009, followed by a short period of stagnation or modest growth in 2010, and then in 2011, a second, more severe and prolonged relapse got started. Accordingly, the general phases of crisis management can be defined: firstly, anticyclical measures were dominant to restore the declining demand while, when the sovereign debt crisis burst out, restrictive policies and austerity became dominant. The purpose of restrictive policies has been to restore confidence on the markets by setting a sustainable and credible government budget. It can be realized by increase of tax revenues or cuttings in government spending; although the first choice seems to be easier to realize, cuts in government spendings or the combination of both appears more effective. Moreover, balance-improving measures are often futile if not accompanied by adequate structural reforms. Austerity policies are frequently criticized because they strangle economic growth and disregard social sacrifices like unemployment or income inequalities. However, in times of such hectic trends in sovereign markets, for member states with massive levels of public debt austerity does not have a real alternative. In our study, we aim to apply statistical analysis on austerity measures. As previous research suggests, too much austerity can be proven harmful for economic growth and impedes reaching pre-crisis levels of income. Our hypothesis is that member states applying the largest austerity packages recover more slowly than those applying moderate austerity. We collected our data from the AMECO database to examine the change in austerity measures and in recovery from the crisis for the EU-27 member states. We used variables such as the governments’ total expenditures or social benefits to estimate the austerity measures; and the recovery from crisis was measured, among others, by the unemployment rate or by the gap between the actual and potential GDP. In our methodology, we examined the relations between austerity measures and recovery from crisis variables with the help of graphical and correlation analysis. Our study confirms our hypothesis and reveals additional information about fiscal consolidation.

Item Type: Article
Journal or Publication Title: Crisis Management and the Changing Role of the State
Date: 2014
ISBN: 978-963-306-340-8
Page Range: pp. 71-87
Uncontrolled Keywords: Gazdaságpolitika - európai
Additional Information: Bibliogr.: p. 84-86. ; összefoglalás angol nyelven
Date Deposited: 2019. May. 24. 10:16
Last Modified: 2019. May. 24. 10:16
URI: http://acta.bibl.u-szeged.hu/id/eprint/57517

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